Maynard Company Solution

ANSWER 2: Cash increased very much, because bank notes payables and accounts payable increased very much. And we can may be assume that there are also gains from the company’s activities. Thus, accounts receivable slightly increased, in parallel with the company’s activities we can also assume that company sales increased. Company is not in trouble with receivables.

ANSWER 3: Retained Earnings didn’t increase by the amount of net income for the month because, Diane Maynard got a dividend of 11.700 USD which she then used to repay her loan. Thus Retained Earnings just got increased by 7,935 USD (=19,635-11,700).

ANSWER 4: Shareholder’s Equity does not necessarily equals to the worth of entity. If we assume that net income is at a monthly average value, (lets round it up to 20.000). 20.000 * 12 = 240.000 USD will be at least the net income for the year. As in our example, as it is the half of the year, we can assume that 240.000 / 2= 120.000 can be added to the equity(in the going concern concept; which states the entity will continue to operate for an indefinitely long period in the future. ) I think the entity is in Going Concern because its Current Ratio (Current Assets / Current Liabilities) is equal to 2,15 at the end of June. It is a very satisfactory ratio. So if we add 120.000 USD to the equity and at least company is at (619.446 + 120.000 = 739.446 USD) worth.

...Notes to Maynard Case
Overall, assets increased at the end of the month compared to the beginning by $43,350. This
results in purchasing more assets, making sales or by simply making payments or purchasing on credit.
1. Cash: There is an increase of cash as of June 30 by $31,677. This could be the result of the company making sales for cash or making purchases on credit which would explain the increase in accounts payable. Also, payments of insurance were credited from prepaid insurance resulting in no cash being removed from the account.
2. Accounts Receivable: There is an increase in accounts receivable as of June 30 by $4,707. This could
be the result of the company making sales on credit.
3. Supplies on hand: There is an increase in supplies on hand as of June 30 by $1,071. This could be the
result of the company having purchased more supplies during the month.
4. Merchandise Inventory: There is a decrease in merchandise inventory as of June 30 by $3,315.The
reason of the decrease would be that the company has made sales during the
month.
5. Prepaid Insurance: There is a decrease in prepaid insurance as of June 30 by $324 because at the end
of the month, a payment of insurance was due resulting in decreasing the prepaid
insurance account.
6. Notes Receivable: The balance at the end of the month is zero because Diane Maynard paid her loan
of...

...MAYNARDCOMPANY (A)
Balance Sheet: Statement of Financial Position
I. STATEMENT OF PROBLEM
Diane Maynard’s bookkeeper has quit and a friend was asked to help her address the following issues at her company:
1. Prepare the Balance Sheets as of June 1 and as of June 30.
2. Compare the financial condition of the company in these two periods.
3. Explain why retained earnings did not increase by the amount of June net income.
4. Comment on the value of MaynardCompany to its shareholders.
II. FACTS OF THE CASE
1. Exhibit 1 – Account Balances: (figures from page 46 of the book)
2. June Net Income: $19,635
3. Dividends withdrawn by Diane Maynard: $11,700
III. ALTERNATIVE COURSES OF ACTION
The only option is to prepare Maynard’s balance sheet for the two periods in order to draw out the needed answers and recommendations for Diane Maynard.
IV. ANALYSIS
1. Prepare the Balance Sheets as of June 1 and as of June 30.
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2. Compare the financial condition of the company in these two periods.
In order to objectively compare the two periods, current ratio and retained earnings were used as measures for comparison.
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3. Explain why retained earnings did not increase by the amount of June net income.
| |229,446 |Retained Earnings as of June 1...

...Solution to Case 1
Cash Flow Analysis
Signal Cable Company*
*
Note to Instructors: When assigning this case, inform the students that the firm’s stock price has recently dropped from $7 per share to $5.50 per share. Case objective: The objective of this case is to cover financial statement analysis and cash flow analysis, with a particular emphasis on liquidity and net working capital. Student Preparation time: Approximately 2 hours. Answers to questions: 1. Why has the stock price fallen despite the fact that the net income has increased? Although Signal has made a net profit that is higher than that of the previous year, its net profit margin is lower (6.98% vs 7.43%). Most of this decrease has been caused by the significant increase in debt in 2001 resulting in much higher interest expenses ($111,000 higher than 2000). Higher debt is not necessarily bad, if profitability is proportionately higher as well. However, the interest coverage ratio of this firm has dropped considerably from 5.72 in 2000 to 2.53 in 2001. Stock prices are affected by earnings as well as by risk expectations. The drop in price is an indication that investors are concerned about the increased risk of high debt.
1
2.
How liquid would you say that this company is? Calculate the absolute liquidity of the firm. How does it compare with the previous year's liquidity position? Liquidity is defined as the ability of converting an asset into...

...ACCT2201 CORPORATE ACCOUNTING
Tutorial 8 – Week beginning 5th of May
REVIEW QUESTIONS
Chapter 15
8. When are potential voting rights considered when deciding if one entity controls another?
Potential voting rights are rights to obtain voting rights of an investee, such as within an option or
convertible instrument.
Potential voting rights are only considered if the rights are substantive ie practical or utilitarian. This
depends on the terms and conditions associated with the options.
If an investor holds options that are deeply out of the money – such that the investee would never
exercise those options – the options would not be considered to be substantive.
9. Is the non-controlling interest classified as a liability or equity?
It is classified as equity as the group does not have a present obligation to outflow funds to those
shareholders.
CASE STUDY
Chapter 15
JAPAN LTD-MALDIVES LTD
-
Discuss:
the concept of control
the need to apply judgement
these situations are often referred to “strawmen” – other parties that act as agents or in
conjunction with the NCI. In the example in this question, the NCI has an assurance that the
voting of the investment bank will always be aligned with its own, ensuring that it cannot be
outvoted.
If control is the basis for consolidation, a factor to consider is the influence available through a
friendly party.
Note however, that there is no guarantee that the investment bank will always vote with the
NCI...

...﻿
Clarkson Lumber CompanySolutions
Questions:
1.What problems does Clarkson Lumber face?
2.Why does Mr. Clarkson have to borrow money to support this profitable business?
3.Is a line of credit of $ 750,000 sufficient to meet the firm’s future financial needs?
4.As a banker, would you approve Mr. Clarkson’s loan request, and if so, what conditions would you put on the loan?
1. The Problem Defined:
The Clarkson Lumber Company has been expanding rapidly for several years. Increases in working capital requirements have outgrown the capacity of the firm to generate funds from internal sources. Also, part of the funds were used to buy out a partner, further increasing financial pressure. The firm has foregone taking discounts on accounts payable and is borrowing increasing amounts from the bank so as to maintain its expansion. Mr. Clarkson’s decision today is whether to expand and , if so, how to raise new funds. He is seeking a new bank connection from which he can borrow larger amounts. In turn, the bank must estimate the amount of funds actually needed by Mr. Clarkson, the probable repayment schedule, the nature and degree of the risks incurred and the appropriate terms of such a bank loan.
2. Why Borrow?
See statement of changes in cashflows from1993 through 1995 in Table TN-A
Points to Note:
The RAPID INCREASE in Accounts Receivables, Inventory, and Plant & Equipment have mainly been responsible for Clarkson’s urgent...

...﻿Carter Cleaning Company: Introduction
Q.1. Jennifer asks that you make a list of five specific HR problems you think Carter Cleaning will have to grapple with.
Answer:
In my opinion, the carter Cleaning Company will have to face the following specific HR related problems.
a) High Turnovers:
One of the HR issues that the case deals with is high employees’ turnover rate. As mentioned in the case, the nature of job does not require higher skills and therefore most of the employees are unskilled. These employees look for similar but better jobs in the market that provide them higher pay. They tend to switch their job quite frequently leading to high turnovers.
b) Low job performance due to lack of training:
Since most of the workers are unskilled and the company does not have a separate HR department for better selection of employees and training them, the performance level was satisfactory but not the best. In other words, the employees were not performing at their peak level. Further efficiency could be brought in with proper training which seems to be lacking here.
c) Increased Employees’ Dissatisfaction:
Absence of proper training and supervision to the subordinate’s work might cause the employees to lack the knowledge of what exactly they are supposed to do and how. The repetitive task with lower pay and higher workload might create discontentment within themselves which also increases their dissatisfaction and grievances.
d)...

...of the CNC machine is $80,000. The additional assumption we need to add to assumption already given is that:
Arthur Dief will run all the small orders (8 circuit boards or less) and other boards will be done on a CNC machine despite of the shop floor policy which states that only orders for more than 100 boards be drilled on a CNC machine.
The company is currently using a CNC machine for orders for equal or greater than 140 boards due to capacity of a CNC machine; however, they would be able to process all orders with CNC machines if they add one more machine.
In this case, if we calculate the current cost in drilling process:
If we buy an additional CNC machine, the cost would be:
So that we can reduce the cost by $6,330.5 (= 12,683.75 – 6,353.25) by adding one more machine.
Cost of capital here is 16% annually which is about % monthly.
When we calculate NPV of this purchase with discounting monthly:
-80,000 + + + + … + = $180,320.96
Therefore, I would recommend adding another CNC Drill since NPV is positive.
4. Comment on the value of Dief to the organization.
Arthur Dief is very valuable employee in Donna company in terms of utilizing all resources to meet every size of demands. He dealt with low volume of orders by himself. Without delaying or hurting the quality of products, his work contributed to minimize the waste of resources such as time and labors. The other employees could concentrate on larger orders so the...